Question

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Answer 1

(a) The graph of the firm's production with marginal cost (MC), marginal revenue (MR), average variable cost (AVC), and average total cost (ATC) can be represented as follows:

[Graph]

In the graph, MC, MR, AVC, and ATC are plotted on the vertical axis, while quantity (Q) is plotted on the horizontal axis. The graph shows that MC and MR are equal at $10, which is also the profit-maximizing quantity (Qpm). AVC is below ATC and intersects MC at $8, and ATC intersects MC at $12.

(b) The profit-maximizing level of production can be determined by finding the quantity of output where marginal revenue (MR) equals marginal cost (MC). This is the point where the additional revenue from producing one more unit of output is equal to the additional cost of producing that unit. In other words, the firm maximizes its profit by producing up to the point where the cost of production is equal to the revenue generated from selling that additional unit of output.

(c) If the average total cost (ATC) is $14 at the point where MC equals AVC, then the average fixed cost (AFC) at that point can be calculated by subtracting the average variable cost (AVC) from the average total cost (ATC) at that point:

AFC = ATC - AVC
AFC = $14 - $8
AFC = $6

So, the average fixed cost (AFC) at the point where MC equals AVC is $6.

(d) Based on the information given, we cannot determine whether the business is experiencing economic profit or loss. Economic profit or loss is determined by comparing total revenue with total cost, not just by looking at marginal cost or average total cost in isolation.

(e) The area of the firm's profit or loss can be shaded on the graph as follows:

[Shaded area]

The shaded area represents the portion of the graph where average total cost (ATC) is higher than marginal revenue (MR), indicating that the firm is incurring a loss. The specific magnitude of the loss or profit cannot be determined without additional information on total revenue and total cost.

Answer 2

I could answer some

B. The profit-maximizing level of production is where the marginal cost (MC) equals the marginal revenue (MR). This is because at this level, the revenue earned from selling an additional unit of the product (MR) is equal to the cost of producing that additional unit (MC). Therefore, producing more units would result in costs exceeding revenues, leading to losses.

c. If the ATC is $14 at the point where MC = AVC, then the total cost (TC) at that point is $14. Therefore, the average fixed cost (AFC) can be calculated using the following equation:

ATC = AFC + AVC

$14 = AFC + $8

AFC = $6

Therefore, the AFC at that point is $6

(d)

To determine if the business is experiencing economic profit or loss, we need to compare the price (P) and the average total cost (ATC) of producing each unit. If P is greater than ATC, the business is experiencing economic profit. If P is equal to ATC, the business is breaking even. If P is less than ATC, the business is experiencing economic loss.

In this case, the price is not given, so we cannot determine whether the business is experiencing economic profit or loss.

(d)

To determine if the business is experiencing economic profit or loss, we need to compare the price (P) and the average total cost (ATC) of producing each unit. If P is greater than ATC, the business is experiencing economic profit. If P is equal to ATC, the business is breaking even. If P is less than ATC, the business is experiencing economic loss.

In this case, the price is not given, so we cannot determine whether the business is experiencing economic profit or loss.

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